Small Companies, Big Questions: Who really owned the shell company that became Kandi Technologies Corp.?

(Part two of a three-part series)

A few weeks after Kandi Technologies Corp. (Nasdaq: KNDI) went public by merging  with a moribund mining company, one of its promoters wrote that 4 million of the shares not held by insiders went “almost exclusively into sophisticated Chinese hands.”

That would have been news to anyone who scrutinized the Securities and Exchange Commission filings on the deal.

Those documents did not mention any sort of transaction that could have transferred so much stock from the Canadian investors who originally owned the mining company, Stone Mountain Resources Inc.

But a Sharesleuth investigation turned up major discrepancies in the share reporting by Kandi and Stone Mountain, which might explain how undisclosed parties came away from the 2007 deal with one-fourth or more of the Chinese vehicle maker’s stock .

Those shares later could have been sold on the open market for tens of millions of dollars.

As we reported in the first part of this series, the SEC filings on the deal said that the chief executive of Stone Mountain got as many as 3 million Kandi shares, or 15 percent of the total outstanding after the merger. Within nine months, however, he no longer was listed among Kandi’s largest shareholders, even though he never reported any stock sales or other changes in his ownership, as required under U.S. securities laws.

In addition, three people who were listed in earlier SEC filings as holding 1.25 million shares of Stone Mountain shares told Sharesleuth they never were investors. Three more told us they weren’t sure whether they owned the 1.15 million shares in their names. They added that they never heard about the merger and never got any Kandi shares.

Thus, an additional 12 percent of Kandi’s shares inexplicably wound up in the hands of other parties, who never were identified in the filings related to the merger. That raises the question of who really owned Stone Mountain, and who wound up with the 8 million Kandi shares issued to its investors.

When Kandi’s shares began trading in July 2007, the stock purportedly issued to Dodge and the other shell owners had a market value of roughly $20 million. Within three months, that value had doubled.

When Kandi’s shares reached a high of $7.25 in April 2008, the stock issued to the Stone Mountain holders would have been worth $60 million.

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